090121 Daily FX Outlook by zacklee

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									DAILY FX OUTLOOK

Tuesday, January 20, 2009

Daily Themes
Majors •
EUR-USD 1.2900-1.3100 The greenback ended firmer against the majors on Mon as financial sector concerns in the UK and growth worries in the EZ continued to weigh. In the EZ, S&P cut Spain’s sovereign debt rating to AA+ from AAA, while the EU also downgraded its economic forecasts (EZ expected to contract -1.9% in 2009), pushing the EUR-USD to near 1.3125. Ahead, the inauguration today of President-elect may not result in much positive optimism globally given the current global environment. The OECD yesterday also stated that the major economies this year are expected to shrink more than the -0.3% GNP decline projected in Dec 08. Note that amidst the string of recent downgrades in the EZ, with investors looking at Portugal and Ireland to suffer the same fate. The German Jan ZEW (mkt:43.1) is due today and any downside surprises are expected to drag the common currency lower. Look for EUR-USD to test the 1.3000 support intraday amidst a still heavy multi-session posture. USD-JPY 89.50-91.00 USD-JPY shaded lower on the day on the back of declining risk appetite and for today, look to Dec consumer confidence, machine tool orders, and the Cabinet Office’s Monthly Economic Report. Meanwhile, a Finance Ministry official said that the economy saw a “terrible performance’ in 4Q 08 as it contracted. Early today, the Nov Tertiary index contracted a larger than expected -0.9% mom (although Oct was revised higher to +0.5%). In the interim, expect the pair to remain mixed but the N225’s -3.0% drop so far this morning should see a heavy tone. AUD-USD 0.6550-0.6700 AUD-USD eased on the day on risk aversion and was further weighed by the NZD early on Tue. This morning, the NZD-USD crashed below 0.5400 (and AUD-NZD rose above 1.2400) as 4Q CPI inflation came in slightly below expectations at -0.5% qoq, strengthening expectations of a 100bp rate cut by the RBNZ on 28 Jan 09. Note that domestic demand in Australia is also being impacted with Dec 09 imports declining -2.0% mom sa from +2.0% in the previous month. For the AUD-USD, look for a test towards 0.6500 multi-session if global concerns persist. GBP-USD 1.4100-1.4300 GBP-USD fell to near 1.4500 as sentiment towards the GBP continued to deteriorate. The Treasury on Mon unveiled a

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20 January 2009

Daily FX Outlook
second financial sector bailout package in the form of a GBP50bn asset purchase program allowing the BOE to buy private sector assets (with the sum open to further increase if necessary). The Royal Bank of Scotland also revealed that losses for 2008 could amount to GBP28bn. On the data front, Jan Rightmove house prices fell -7.3% yoy while today, the Dec CPI numbers are also due. Multi-session, a test towards 1.4000 cannot be ruled out if negative sentiment continues to weigh.

Asian FX
• Asian currencies had a good start early on Mon but sentiment quickly turned, with most pairs retracing early morning losses but still ending lower on the day with most regional equities (except the KLSE, PCI and JCI) firmer with sovereign spreads tighter. Expect USD-Asia to climb again today on decreased risk appetite For USD-SGD, we reiterate the risk of an inter-meeting policy loosening in the SGD NEER with the 4Q GDP numbers tomorrow and the Budget on Wed (pleas see yesterday’s Daily FX Outlook). The USD-SGD is markedly higher early today on de facto global dollar strength and the NEER is trading near -1.8% below parity. The absolute weak-end is estimated to be around 1.5030 at current market levels although a peek towards 1.5050 cannot be ruled out. Similarly expect USD-MYR to track a 3.5950-3.6100 band. Fitch Ratings on Mon lowered the outlook on Taiwan’s local currency ratings to negative from stable, citing “a growing general government deficit financed by local currency borrowing”. Note however that h outlook on the sovereign’s long term foreign currency rating remains stable. Chinese premier Wen Jiabao said Mon that this year would be the most difficult year for the economy since the start of the century. South Korea underwent a Cabinet revamp with markets reacting positively to the appointment of Yoon Jeung-hyun as the new Minister for Strategy and Finance. Policy continuity is meanwhile expected to persist with the government intent on keeping the economy afloat rather than trying to steer the local currency weaker.

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Treasury & Strategy Research

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20 January 2009

Daily FX Outlook

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